The government plans to double the mandatory local content in electric vehicles to 70% in three years and impose heavy duties on imports to ensure that domestic manufacturing gets a big boost from the Rs 8,730-crore proposal to shift public transport to battery-operated vehicles.

This has huge implications for domestic car makers such as Tata Motors and Mahindra & Mahindra, which are facing competition from foreign players like China’s BYD, which recently won tenders with astonishingly low bids that seemed unviable to local rivals.

The second phase of Faster Adoption And Manufacturing of (Hybrid &) Electric Vehicles in India (Fame India) scheme, which is being finalised, proposes long-term tax holidays for domestic manufacturing and heavy duties on equipment imports.

The proposal provides for compulsory sourcing of minimum 50% domestic content for electric vehicles in the first year, 60% in the second year and 70% in the third year, a government official said. Currently, local content in electric vehicles is at about 35% as most companies import batteries that account for a major cost of electric vehicles. Local auto makers, however, said moving to high local content with incentives and tax breaks was not difficult.

Fame II aims to make the the country's public transport system fully electric and promote e-mobility and is expected to be finalised in a month. The proposed scheme, with financial incentives to alternate energy vehicles used for public transport, commercial purposes and high-speed two-wheelers for five years, will require approval of the Union Cabinet.

The first phase of Fame India was launched by the government in 2015. In March, the scheme was extended by six months till September 2018.

The Rs 8,730-crore scheme proposes fiscal and non-fiscal incentives to electric vehicle firms for five years. The fiscal incentives could include tax holidays, cheaper land and power availability and duty exemptions. The non-fiscal incentives include waiver of road tax and registration charges for electric vehicles.

Armed with electric vehicle policies, various state governments have invited tenders for electric vehicles for public transport systems. Recent tenders called by 10 states to procure electric buses received low bids from companies like Ashok Leyland, Tata Motors and BYD-Goldstone Infratech.

Presently, electric vehicles sales are at 1% of total vehicle sales but has the potential to grow to more than 5% in few years, according to the Society of manufacturers of Electrical Vehicles. At present, there are more than four lakh electric two wheelers and few thousand electric cars on Indian roads.

More than 95% electric vehicles on Indian roads are low speed electric scooters of less than 25km per hour that do not require registration and licences. Most of these electric scooters run on lead batteries to keep the prices low.